Credit crisis is still there, August defaults worse since the recession began

In spite of all the expectations and projections the credit crisis is not over yet as it was demonstrated by the August figures on credit card defaults. Bank of America Corp and Citigroup Inc customers defaulted on their credit card debts in August at the highest rates since the onset of the recession. Meantime, other major credit card issuers were not far behind this trend. 

"People have gotten very bullish with the July data, and (the August data) raises the question about how fast the consumer will get better," said Scott Valentin, an analyst at FBR Capital Markets. "People were assuming the pace would be pretty rapid, and this maybe slows the pace down."

In view of unexpectedly worsened figures in August experts regarded improvement in July as a result of seasonal effects, like tax refunds, then an improvement in consumers' financial health. Thus, most analysts now expect bad-loan to further increase through this year and maybe till early 2010.

"The defaults are a wake-up call for those expecting a V-shaped recovery," said Elliot Spar, options market strategist at Stifel Nicolaus & Co.

Bank of America said its charge off-rate -- loans the company does not expect to be repaid -- rose to 14.54 percent in August from 13.81 percent in July.

Citigroup, the largest issuer of MasterCard-branded credit cards, said its charge-off rate rose to 12.14 percent in August from 10.03 percent in July.

The charge-off rates for both Citi and Bank of America, two of the biggest recipients of U.S. government bailouts, were the highest yet during the financial crisis.

JPMorgan Chase & Co, the largest issuer of Visa-branded credit cards, said its charge-off rate rose to 8.73 percent from 7.92 percent, while smaller Discover Financial Services said its rate rose to 9.16 percent from 8.43 percent.

American Express Co's default rate fell to 8.5 percent from 8.9 percent as the company increased its lending portfolio.

JPMorgan, Discover and Capital One Financial Corp reported late payments on credit cards -- an indicator of future defaults -- rose in August after several monthly declines.

Valentin said the rise in delinquencies at some companies was double or triple the levels expected.